A fresh look at communications regulation

The last time that Congress enacted major telecommunications regulation reform, in 1996, the state of technology was very different than it is today: Fewer than 15% of Americans had a mobile phone, under one-third of U.S. households were online, and virtually all of those that were online had only slow, dial-up connections. Amazon.com and eBay were small startups (both were launched in 1995), and Mark Zuckerberg was still living at home with his parents, preparing for his bar mitzvah.

The 1996 Telecommunications Act focused primarily on increasing competition in the telephone industry, mainly by allowing local and long-distance providers to compete with one another. It had little to say about the Internet (the word "payphone" appears in the legislation more often than the word "Internet"), and it made no mention at all of wireless telephony. And the law left largely unchanged the basic structure of the Federal Communications Commission (FCC) and of communications regulation -- which had been put in place with the first telecom law in 1934.

As I have been exploring in these columns, the world of communications has changed enormously over the past 20 years. People are shopping, learning, socializing and communicating online in ways that would have been difficult to imagine in 1996. Wireless has emerged as a major new medium that provides mobile Internet access and is now the only phone service for 40% of U.S. households. New forms of competition have emerged, with traditional Internet and telephone providers now offering TV programming and traditional cable TV operators providing broadband Internet access. And with the rise of the Internet of Things, telecommunications is becoming ever more intimately woven into the fabric of everyone's everyday lives. Yet despite the massive convergence of media, telecommunications regulation remains siloed, with different regimes for wired and wireless telephony and broadcast and cable television.

Last year, a new initiative to update telecom regulation was launched by two members of the House of Representatives, Fred Upton (R-Mich.) and Greg Walden (R-Ore.). They started by releasing a series of white papers that identify major issues and raise some of the key questions that will have to be addressed. The papers give a good sense of the diversity and complexity of the issues that are involved. Although there have been calls for Congress to make updating the Communications Act a high priority, the reality is that passing new legislation is not likely to be either quick or easy. However, if Congress does decide to act, it should be seen as an opportunity not just to make adjustments to the existing regulatory scheme, but to thoroughly rethink how telecommunications are regulated.

New approaches for a new environment

As technology has evolved, the communications industry has been greatly transformed. Traditional landline service providers, the cable industry, fiber-optic service providers, satellite networks, Voice over Internet Protocol (VoIP) companies, wireless carriers and even software-based services (think of Skype or WhatsApp) all compete in a complex ecosystem of choices. And as technology continues to progress, new kinds of services and new options will continue to emerge. So the challenge facing policymakers is to devise a new regulatory structure that will protect consumers while encouraging vigorous competition and supporting ongoing innovation and that will remain relevant over time.

Attempts to broadly rethink how telecommunications regulation is structured are not new. And it turns out that some of the old ideas may still be worth considering today. For example, in 1986, Henry Geller, who had been the general counsel of the FCC, described the federal policymaking process for communications as "seriously flawed" and proposed the creation of a new federal agency that would combine the roles of the FCC and the National Telecommunications and Information Agency (NTIA). In 1998, Harry "Chip" Shooshan, who had served as chief counsel to the House Subcommittee on Communications, published a "modest proposal" that called for replacing the five FCC commissioners with a single professional administrator.

More recent proposals for telecom reform have focused on creating a new regulatory structure that would respond to the new digital environment while preserving the dynamism and innovativeness that have been the hallmarks of the lightly regulated Internet to date. For example, there is a growing consensus that the separate siloes that provide different regulatory rules for different media (administered by different "bureaus" within the FCC) no longer make sense and should give way to an approach more suitable to regulation of an overarching digital network that protects consumers and competition but is flexible enough to evolve with new technologies and encourage continued innovation.

Coping with constant change: New models for regulation

In addition to the challenge of designing a telecom regulatory scheme that is appropriate to a converged world, a second big challenge for policymakers is dealing with the relentless rate of change that characterizes digital media. Because government policies, once put in place, are typically difficult to modify, any fixed regulatory scheme that makes sense today is likely to make less sense tomorrow.

To address this problem, Professor Eli Noam of Columbia University has proposed what he calls "Regulation 3.0 for Telecom 3.0." According to Noam, Regulation 1.0 was the original 1934 Communications Act, which was based around regulating monopoly providers, while the '96 Act, which was intended to encourage competition, represented the 2.0 version. What is needed now, he argues, is a third version of regulation for a dynamic, digital environment that replaces the development of elaborate ex ante rules that define what is and is not permitted with a "more flexible, common-law style system based on broad principles."

A similar but even more far-reaching proposal for a new regulatory scheme for the digital age comes from Richard Whitt, an attorney who originally worked for MCI Communications and currently works for Google. In a 2009 article in the Federal Communications Law Journal, Whitt makes a case for what he calls "adaptive policymaking." He begins by arguing that classical "old school" economics is no longer a reliable guide to the realities of the new digital environment. He proposes to replace it with what he calls Emergence Economics, which incorporates insights from cutting-edge fields such as complexity science, behavioral economics, game theory, network science, new growth theory and competition theory. A key insight is that "we live in an emergence economy [in which] individual agents, acting through interconnected networks, engage in evolutionary market processes ... which generate a host of emergent economic phenomena." In such an environment, different economic sectors -- such as telecommunications -- are best understood as complex adaptive systems (i.e., ecosystems) made up of multiple entities (including private enterprises, public interest groups and government agencies) that are "each shaping, but not fully determining, the other."

This complex, dynamic and unpredictable environment requires a new approach, which Whitt calls "adaptive regulation," and which shifts focus from attempting to achieve a "static optimization of parameters to an evolutionary paradigm that emphasizes adaptability." He outlines a series of principles that should guide practitioners of this new approach. For example, adaptive policymakers should be experimentalbecause "the combination of uncertainty and constraints on predictability creates the necessity to experiment." They should also be flexible in making rules since "deep uncertainty about complex systems like markets, or especially the Internet, implies the need for flexibility." And any actions taken should be provisional: "adaptive policymakers should favor reversibility."

Rather than attempting to constrain or direct the outcomes of market processes, the goal of adaptive regulation should be to "improve the market's ability to formulate and present options to agents while leaving the selection process undisturbed." Whitt describes four strategies that policymakers should follow in order to contribute to the effectiveness of markets by "tinkering not tampering" with their functions (strategies that should be applicable to the regulation of other economic sectors as well as to telecommunications):

Congressional policymakers have their work cut out for them in updating the law governing communications. But they have an exciting opportunity to bring regulation fully into the 21st century to ensure that Americans continue to enjoy the benefits that rampant innovation has produced. The fact that a bipartisan group of policymakers in both houses of Congress has acknowledged this issue as a top legislative priority is an encouraging sign.

(For a more thorough discussion of the history of telecommunications regulation and various for updating it, see my 2013 report, Rethinking Communications Regulation, published by the Aspen Institute.)

Richard Adleris a distinguished fellow at the Institute for the Future in Palo Alto, Calif. He has written widely about the future of broadband and its impact on fields such as education, healthcare, government and commerce.

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